REFILE-UPDATE 1-UBS CEO: European banks 'in much better shape' now than several years ago

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(Corrects inactive stock symbol in paragraph 3)

WASHINGTON, Oct 7 (Reuters) - The European banking system is in “much better shape” than it was several years ago, UBS Group AG Chief Executive Officer Sergio Ermotti said on Friday.

“The last two weeks are a testament to that,” Ermotti said at the 2016 Institute of International Finance Annual Membership Meeting in Washington. “The same kind of dynamics seven or eight years ago would have created a major fallout.”

The comments came as Deutsche Bank, Germany’s biggest lender, faces heavy pressure as it fights a penalty of up to $14 billion that the U.S. Department of Justice plans to impose for misselling mortgage securities. On Thursday, IMF chief Christine Lagarde gave the bank some tough advice, saying it needed to reform its business model and rapidly reach a deal with U.S. regulators.

Ermotti also said that European banks should see some consolidation around geography and client segmentation.

“Each bank should really try to figure out, ‘What is my DNA? What is my relevance to clients?'” he added.

Also at the conference, Ana Botin, the new chairwoman of Banco Santander SA, said Europe is not prepared for cross-border mergers between banks as several perquisites, from regulatory measures to efficiency gains, are still needed.

Some regulators and European Central Bank officials have called for more cross-border mergers, arguing that Europe’s bloated bank sector must be reduced, given weak profitability, poor efficiencies and excessive competition.

Botin was appointed last month after the sudden death of her father, Emilio. She has said she would push ahead with the international diversification of the lender.

The comments come as Britain prepares to leave the European Union, either in a “hard Brexit” in which in it leaves the EU’s single market in order to impose controls on immigration, disrupting access to the country’s main trading partner, or in a “soft Brexit” in which it keeps in or close to the EU’s single market, retaining many trade and business benefits. (Reporting by Olivia Oran; Writing by Jeffrey Benkoe and Meredith Mazzilli)